A Few Thoughts on Phezzan Tokenomics, Part 1 — Futarchy and Emission Schedule
A long long time ago we said that there will be no Phezzan token before product-market fit. That statement still stands. At the same time the Phezzan team has been studying all kinds of tokenomics from other protocols. The biggest takeaway is that many things don’t make any sense and I cannot figure out why, just like Edward Norton on the Roast of Bruce Willis. Since not that many people are gonna read this article, it won’t be a starting point of discussion but a point of reference for the future me to see how much I have learnt.
1. Futarchy
The definition of Futarchy on Wikipedia is “a form of government proposed by economist Robin Hanson, in which elected officials define measures of national wellbeing, and prediction markets are used to determine which policies will have the most positive effect.” I’m not going into too much details here, this article by Vitalik and the original paper by Robin Hanson explain Futarchy better than I can ever do. Also this article by a member of Phezzan community in Phezzan Academy is pretty good too.
Here comes the question: why only GnosisDAO is using this model for governance?
The original paper was written back in 2013 and Vitalik wrote about it in 2014. Shouldn’t the crypto industry at least have tried it several times already? There are concerns about the Futarchy model, such as how one can encourage members to vote for the greater good but not to vote so they can get opponents’ money. But surely some experiments can be done.
For example, on Terra governance forum, there is an option when voting called “no with veto” which is to confiscate the deposits made by the one who raises a proposal. What if some fixed amount of all proposal related deposits goes into a smart contract and will be returned only if the vote passes, and to the Phezzan treasury if the vote does not pass? Or can we just design a permissionless futures contract platform on Phezzan so people can bet on some high profile governance votes on other protocols? Why hasn’t many, if any at all, protocols tried the Futarchy model?
2. Emission Schedule
For DeFi protocols, a big part of tokenomics is the allocation of tokens to liquidity providers and its emission schedule. What percentage of tokens should a protocol allocate to liquidity providers and at what rate? Many protocols, if not most, has their emission schedule lined up in the beginning. Just to be clear, by “emission schedule” I’m only talking about rewards that go to liquidity providers/insurance fund stakers/trading activities, cliff/vesting of team/investors/advisors are settled by some form of legal documents and thus shall be honored.
Here comes the question: How can one know how much token should be distributed to liquidity providers a few years from now?
I mean, if the protocol is like Bitcoin, where nothing major changes for years and everyone agrees with the emission schedule either voluntarily or reluctantly, yes it makes sense. But many protocols change their emission schedule all the time. What’s the point of having a long term emission schedule if it is gonna change anyway? Just to show that the founding team has everything under control and is extremely confident?
Astroport has laid out its LP Emissions for the next 69 years. While I am a huge fan of Astroport’s veToken + lockdrop + Bootstrapping Pool methods, I personally cannot understand the reasoning behind a ~20% decline in emission rate. Why ~20% not ~15% or ~25% or ~18%? Did the Astroport team just set up a random number or it’s calculated? If it’s a calculated percentage, what’s the reasoning behind? Oh by the way the original plan of 49 million ASTRO tokens in the first year was changed to 100 million ASTRO tokens after 3 months of Astroport litepaper release.
Another question about emission would be: why the outline is always yearly not quarterly? The crypto market took a huge hit in April 2022. Does it make sense to give same amount of rewards to liquidity providers in Q1 2022 as Q2 2022? Why not have an emission schedule by quarter? Monthly emission schedule might too much of a hustle but quarterly sounds more reasonable than yearly.
Danku_r posted a pretty good thread on emission schedule that suggests here is a need for high emissions at the beginning and the emission schedule has little to do with selling pressure. If those statements are true, can Phezzan put all those rewards into the treasury, admit that we know almost nothing about what/how much to distribute in a few years, and just set up an emission schedule for year 1 and its all 4 quarters? Then when year 2 comes, Phezzan Protocol can have some governance votes about how much to distribute.
That’s it for this week. We will be talking about airdrop, inflation/deflation, token utility, and other topics in future “A Few Thoughts on Phezzan Tokenomics” write-ups. At the same time, please join our Discord. Phezzan Protocol will launch its testnet on zkSync 2.0 soon!
